Fireworks

The extraordinary events of 2016 continue to dominate both headlines and investment strategy for many.  This year is likely to see continued uncertainty as these events play out and further elections across Europe provide a catalyst for future change and uncertainty.

Despite this, the FTSE 100 started 2017 by hitting a record high and the UK Economy is forecast to deliver 2.1% growth for 2016, just shy of the forecaster’s predictions in January 2016 and considerably ahead of revised forecast post Brexit.

The economy in 2017 is likely to deliver flatter, more benign growth against a backdrop of a slowing global economy and strong geopolitical uncertainties.  The most immediate impact of the decision to leave the Euro has been the sharp fall in sterling which has helped exporters and boosted revenues from tourism but is likely to see inflation rise (the Bank of England predict 2.7% in 2017 versus 1% in 2016).  Low interest rates look set to remain in the short/medium term, although the Trump administration may provide a welcome boost to the economy if some of their expansionary economic policies are implemented.

Commercial property transaction volumes fell by 30% in 2016 as a result of market uncertainties, from the £70bn achieved in 2015.  The UK funds remained largely out of the market for most of the year constrained by fund outflows.  The sharp fall in Sterling proved appealing to Asian investors, who made a number of large London office acquisitions in the second half of 2016.  Average capital values for the UK commercial market are predicted to have fallen by 4% in 2016 (IPF), with further falls expected in 2017/18.

The occupational market in general remains robust, held up by constrained supply, albeit this masks considerable variation by sector and sub market.  We expect similar lower transaction volumes in 2017 with investors remaining cautious in light of market uncertainties.  Investors are likely to remain income focused with a continued strong appetite for well located, higher yielding property (e.g. industrial).

Whatever happens, it’s sure to be a busy year, and we believe our Clients with their income focused portfolios and conservative leverage are well placed to take advantage of the uncertainty and weather any storms ahead.

Comments by:  Julian Carey and James Wakelin, C2 Capital
Date:  23rd January 2017